What does success look like when investing? The key message, above everything else, is to start early and do it regularly.
Here are 5 points that will ensure your success when investing:
- Spend less money than you make
- Save the difference
- Buy a diverse portfolio of investments
- Start early
- Be patient
Interestingly, the final point is the one that most people struggle with, yet patience is something that is practised by the successful investor.
A broad philosophy is that investors are their own worst enemies, and the real key to good investing over time has little to do with the investments you pick and lots to do with how you manage your behaviour.
Research suggests that if you spend 90% of your time focusing on keeping your emotions in check, putting market volatility into proper context and doing everything you can to take a long-term view, you’ll end up doing better than the majority of investors.
Everyone, no matter how they invest, must fight overconfidence as it comes down to understanding your own risk tolerance and how that fits into your time horizon. One of the most common behavioural mistakes of investing is panic selling.
Carl Richards, from Behavior Gap, defines risk as:
“Risk is what’s left over when you think you’ve thought of everything else.”
This is a reminder of how hard risk is to think about. Risk is, almost by definition, the stuff we aren’t thinking about.
The market will fluctuate and at times may seem risky, but no one knows what the market will do. Time in the market is key, not timing the market.